Understanding Your Credit Card Applications

When you apply for a credit card it is important to understand the deal your getting with that new card. As your credit improves over time you will usually get the better deals but lets go over a few things you should understand.

Annual fee

This is a flat yearly charge similar to a membership fee. The fee could be $40, $50 or even more. Many credit cards that are offered to those with bad credit or no credit will have this annual fee. Of course no one really likes paying this annual fee but it should not be a big problem if you are just starting out and trying to establish your credit. Soon enough you will be able to get the credit cards with no annual fees! A tip you might want to remember is that after being a customer for a while you can call the credit card company and ask them to waive this fee. Some will since they would rather keep you as a customer than lose you as a customer.

Monthly Participation Fee

This fee is usually a $5 or so fee that is charged to you every month. Again, this is usually offered to those with a shady past credit history. It is another method to rebuild your credit history.

Finance charge

The dollar amount you pay to use credit

Besides interest costs, this may include other charges such as cash-advance fees, which are charged against your card when you borrow cash from the lender. (You generally pay higher interest on cash advances than on purchases -- check your latest bill to find out what you're paying for this service!)

Grace period

A time period, usually about 25 days, during which you can pay your credit-card bill without paying a finance charge

Under almost all credit-card plans, the grace period only applies if you pay your balance in full each month. It does not apply if you carry a balance forward. Also, the grace period does not apply to cash advances.

Annual percentage rate (APR)

The yearly percentage rate of the finance charge

Interest rates on credit-card plans change over time. Some of these adjustments are tied to changes in other interest rates, such as the prime rate or the Treasury Bill rate, and are called variable-rate plans. Others are not explicitly tied to changes in other interest rates and are called fixed-rate plans.

Fixed rate

A fixed annual percentage rate of the finance charge

Variable rate

Prime rate (which varies) plus an added percentage (For example, your rate may be PR + 3.9 percent.)

Introductory rate

A temporary, lower APR that usually lasts for about six months before converting to the normal fixed or variable rate (This is a hot topic -- more about it later.)

Experts say that if you're smart, you'll do the same kind of comparison shopping for a credit card that you do when you're looking for a mortgage or a car loan. This is a good idea because the choices you make can save you money. It is true that you will not get the best deals when starting out but as your credit gets more better and better look for those better deals out there.